The tech-heavy NASDAQ is trading at all-time high, tempting investors to keep moving into the tech sector. Semiconductor stocks are natural plays, since chip technology underlies pretty much every aspect of the modern digital world.
The optimism on semiconductor stocks is also fueled by the transition to 5G wireless networks. Telecom providers have started to shift from 4G to 5G – and that switch will require new chips. Control systems, modems, smartphone devices – companies and customers will see new 5G-compatible models in the next 12 months, and every device will need 5G compatible chips. The chip makers are looking at a resurgence of business next year, and that outlook is starting to lift the chip stocks.
The strength of the chip industry has attracted notice from some of Wall Street’s top stock analysts. And three top reviewers have recently tagged three of those chip makers, noting double-digit upside potentials.
Marvell Technology (MRVL)
We’ll start with Marvell, a chip maker that boasts a $30.2 billion market cap, more than $2.9 billion in annual sales, and operations in a dozen countries globally. Partnerships with major device manufacturers – Samsung and Nokia – have cemented Marvell’s position as an important supplier in the growing 5G chip market.
Shares in Marvell have made impressive gains this year, rising 70%. The company’s gains have been powered by the partnerships mentioned above. Those moves, especially the link with Samsung, one of the biggest names in handsets, put Marvell in a position to expand its market share in 5G-capable chips – an important stake in the future of wireless.
In its quarterly results, published earlier this month, Marvell posted $750 million in total revenue, its highest this year, along with a non-GAAP EPS of 25 cents per share. The company reported strong growth, on the order of 35%, in its networking segment.
Covering the stock for Rosenblatt, 5-star analyst Hans Mosesmann is keeping his bullish stance intact as “the company transitions into a leading edge process node player with ARM processor, custom ASIC, and Networking/ Storage IP all moving to 5nm/3nm in the next several years.”
“To wit, Marvell already has major wins vs. x86 processor sockets and Top-of-Rack (ToR) switching that typically are owned by Intel and Broadcom, respectively,” the analyst noted.
Mosesmann gives MRVL shares a $60 price target to back his Buy rating, suggesting a 33% one-year upside. (To watch Mosesmann’s track record, click here)
Overall, the analyst consensus rating on Marvell is a Strong Buy, based on 22 reviews, including 17 Buys and 5 Holds. The shares are selling for $45.19 and their $50.55 average price target implies an upside of 12% for the coming year. (See MRVL stock analysis on TipRanks)
ON Semiconductor (ON)
ON Semiconductor holds important positions in the sensor, microcontroller, and optoelectronic segments. The company boasts over $5.5 billion annual sales, putting it among the top 50 of the world’s chip makers. ON has operations across the US, Europe, and East Asia.
In an important development, ON announced this month that Hassane El-Khoury has been named as company President and CEO. El-Khoury boasts a successful history as a Lebanese immigrant educated in Michigan, and was previously an exec at Cypress Semiconductor. He took the helm of ON effective December 7, and his predecessor, Keith Jackson, remains in an advisory capacity until the end of 2021 to facilitate the transition.
ON took a hard blow during the downturn last winter, when corona first hit, but has been rounding since. Revenues have been climbing through 2020, with the Q3 top line, $1.32 billion, being the best of the year so far. EPS in the third quarter, at 38 cents, beat the forecast by an impressive 90%.
Among the fans is Needham analyst Rajvindra Gill who rates ON shares a Buy along with a $38 price target. This figure implies a 22% upside from current levels. (To watch Gill’s track record, click here)
Backing his stance, Gill noted, “We are bullish on ON Semiconductor due to its strong competitive positioning in the automotive, industrial, and communications end markets, where it stands to benefit from multiple secular tailwinds, including vehicle electrification, industrial automation, increased power efficiency requirements, ADAS, and 5G… we believe the inventory correction that affected the semi cycle since October 2018 is largely over and believe that we are approaching a bottom.”
The Street’s consensus rating on ON shares is a Strong Buy, based on 13 Buys, 1 Hold, and 1 Sell issued in recent weeks. The shares are selling for $31.14 and the $33.50 average price target suggests a 7.5% from that level. (See ON stock analysis on TipRanks)
Cirrus Logic (CRUS)
Last but not least is Cirrus Logic, a fabless chip maker in the industry. Cirrus’s chips are designed the audio market, and are found in high-end sound systems and voice reproduction equipment. The company recently finished its 2020 fiscal year with $1.28 billion total revenues.
Revenue in the recently reported fiscal Q2 reached $347.3 million, the highest of the calendar year, while the EPS of 99 cents per share beat the forecast by 10%.
Cirrus has gotten a major boost from its partnership with Apple. The chip company is a prime supplier of audio chips for the iPhone series, and Apple makes up over 80% of Cirrus’ revenues. Such a reliance on one outlet would normally be a serious liability – except that Apple’s iPhone are perennial strong sellers with an installed userbase exceeding 900 million worldwide. It’s a stable foundation for Cirrus to build on.
Susquehanna’s 5-star analyst Christopher Rolland is impressed with Cirrus’ strong performance, and the success of its Apple-centered strategy. He writes, “Cirrus offered spectacular results and guidance, as increasing content across the Apple lineup buoyed sales into 2H20. Additionally, the resounding C4Q beat may suggest content into today’s new iPhones is better than originally anticipated, as we now believe that new content is more ubiquitous across the lineup…”
Along with these comments, Rolland gives CRUS a Positive (i.e. Buy) rating, and his $95 price target indicates confidence in 17% growth in 2021. (To watch Rolland’s track record, click here)
All in all, with 8 reviews, breaking down to 5 Buys and 3 Holds, Cirrus gets a Moderate Buy rating from the analyst consensus. The stock’s average price target, $87.50, suggests it has an 8% upside potential from the trading price of $81.09. (See CRUS stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.